Plantations MALAYSIA

Felda Global Ventures

Avg Daily Turnover

Free Float

Target Previous Target Up/downside

US$5,887mRM18,423m

US$42.55mRM135.2m

49.2%3,648 m shares

Notes from the Field

Coming into bloom

Conceived as the vehicle for FELDAs global expansion and growth ambitions, Felda Global Ventures Holdings (FGVH) is already a major palm oil force in Malaysia. It aims to become a dominant global agribusiness group over the next few years.We initiate coverage on FGVH with a Neutral call and RM5.05 target price (based on a 10% discount to SOP). The stock offers growth prospects given the improving efficiency at its estates, the turnaround of its overseas assets and M&A activities. However, this is already reflected in the current share price as valuations are in line with peers. leverage its links with the government in its pursuit of overseas M&As.

Ivy Ng Lee Fang CFA

T (60) 3 20849697 E ivy.ng@cimb.com

Room for growth

There is scope to improve its estate yields and oil extraction rates at its mills by replanting old trees with higher-yield seeds and consolidating the management of its estates. The group plans to improve its estates age profile over the next five years through more aggressive replanting. Plans are also underway to merge the management of its smaller estates to reduce costs. We estimate every 1 tonne/ha gain in FFB yields would add 6% to its FY13 net profit forecast.

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Expert Opinion Customer Views

Dominant agri group

FGVH is a global agribusiness group with operations in over 10 countries though its key operating assets are mostly in Malaysia. It is the third largest palm oil estate operator in the world and, through 49%-associate Felda Holdings Berhad, is the worlds largest CPO producer and the second largest Malaysian palm oil refiner. The group is the largest sugar refiner in Malaysia through MSM Holdings. The groups dominant position in the palm oil space provides it with better economies of scale. There are plans to expand its agribusiness to ASEAN and Africa and build its downstream value-add. We expect the group to

M&A is the key. We will expand our plantation estates, whether for greenfields or brownfields. Dato Sabri, Group President and CEO

In line with peers

We start coverage on the stock with a Neutral call as current valuations, which are in line with peers, are already fairly pricing in the groups earnings potential. We would turn more positive on the group if it is successful in its plans to acquire earnings-accretive M&As.

The group targets to pay out 50% of net income as dividends.

SOURCE: CIMB, COMPANY REPORTS

Felda Global Ventures

August 6, 2012

BY THE NUMBERS

Balance Sheet

The group is in a net cash position following the IPO exercise, which raised around RM4.5bn.

(RMm) Fixed Assets Intangible Assets Other Long Term Assets Total Non-current Assets Total Cash And Equivalents Inventories Accounts Receivable Other Current Assets Total Current Assets Trade Creditors Short-term Debt Other Current Liabilities Total Current Liabilities Total Long-term Debt Other Liabilities Deferred Tax Total Non-current Liabilities Shareholders' Equity Minority Interests Preferred Shareholders Funds Total Equity

Coming into bloom

1. BACKGROUND 1.1 Global agribusiness group

Felda Global Ventures Holdings (FGVH) is a Malaysian-based global agribusiness group with operations spanning over 10 countries. The group is the third largest oil palm operator in the world and the largest sugar refiner in Malaysia. Its 49%-owned associate Felda Holdings Berhad (FHB) is the largest CPO producer in the world and the second largest palm oil refiner in Malaysia by capacity. Apart from palm oil and sugar, the group is also involved in soybean and canola crops through its crushing and refining operations in Canada. The company was listed on Bursa Malaysia on 28 June 2012.

Overseas 1 wholly-owned oleochemical facility in the US 1 wholly owned soybean and canola crushing and refining facility in Canada Through JV 2 refineries in Malaysia 4 refineries in Indonesia, China, and Turkey 2 downstream processing facilities in China and South Africa 1 other oils and fats facility in the US

Contract with Felda Palm Industries (FPI), 72% subsidiary of FHB, for use of palm oil mills -FFB processing for substantially all internal crop -CPO offtake for substantially all of FPIs internal and external crop*.

*Excluding consumption of Felda Palm Industrys CPO by Delima Oil Products, FHBs subsidiary. In 2011, 237,368MT of CPO was used by DOP.SOURCES: CIMB, COMPANY REPORTS

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August 6, 2012

1.2 Commercial arm of FELDA

The group has a relatively short history. It was incorporated on 19 December 2007 to spearhead government agency Felda Land Development Authoritys (FELDA) expansion into overseas markets and other agribusinesses (see Section 2 for more on FELDA). Since its inception, FGVH has been actively acquiring assets and interests in companies from its parent and third parties. Although the group may be a relatively new kid on the block, some of its operating entities have a long history, dating back to as early as 1964. The group currently owns ten direct subsidiaries, two associates and two joint venture companies (see Appendix 2 for a more detailed corporate structure).Figure 2: FGVHs key milestones FGVH incorporated as a wholly owned subsidiary of FELDA FGVH acquired a 49% equity interest in FHB from FELDA FGVH acquired a 50% equity interest in FELDA IFFCO from FHB FGVH acquired a 50% interest in Trurich from Lembaga Tabung Haji 2009 2010 MSM Holdings was listed on the Main Market of Bursa Securities FGVH has acquired a 95% interest in PT Citra Niaga Perkasa.

2007

2008

2011

2012 Introduction of New Business Model Land Lease Agreement and Sarawak Land Management Agreement between FELDA and FGVH regarding approximately 355,864 ha of land FFB sale and CPO purchase agreement between FGVH and FPISOURCES: CIMB, COMPANY REPORTS

FGVH acquired FGV North America from FELDA Gaining control of TRT Holdings, which operates oleochemical facilities in Quincy, Massachusetts, USA

FGVH acquired 100% interest in MSM, a 50% interest in KGFP, a 20% stake in Tradewinds (M) and 5,797 ha of sugar cane plantation land from PPB group

1.3 Transformation into a leading CPO player

FGVH transformed itself into a global palm oil player after this years signing of two landmark agreements that are part of the FELDA groups new business model plan: (1) A land-lease agreement with FELDA made on 1 November 2011 but having effect as from 1 January 2012 that gives FGVH the right to lease 347,584ha of plantation estates in Malaysia for up to 99 years. The agreement was novated by FGVH to its wholly owned subsidiary, Felda Global Ventures Plantations (Malaysia) Sdn Bhd (FGVPM) held through Felda Global Ventures Plantations Sdn Bhd on 6 Jan 2012. Before this agreement, the estates were managed by a subsidiary of its associate Felda Holdings Berhad (FHB). There is also a management agreement with FELDA in relation to 8,280 of land in Sarawak. (2) A contractual agreement between FGVPM and FHBs subsidiary Felda Palm (F Palm) on 1 March 2012 to sell almost all the fresh fruit bunches (FFB) produced by its estates to F Palms mills. Under the same agreement, F Palm will sell a substantial portion of its total CPO production back to FGVPM which will resell it to third parties, FHBs subsidiaries and joint ventures.

Felda Global Ventures

August 6, 2012

We estimate that under this arrangement, the group will have access to 3.3m tonnes of CPO production in Malaysia to be traded or sold to related and third parties. This represents 17% of Malaysias palm oil output and 7% of global output, placing the group among the top two CPO traders in Malaysia.

1.4 Plantation is the largest earnings contributor

Plantation is the largest contributor to the group, accounting for 88.5% of group gross profit in FY11. We estimate that MSM Malaysia, its sugar division contributed 23% of its gross profit. Downstream division posted a gross loss of RM233.5m in FY11. Associates, led by 49%-owned Felda Holdings Berhad (FHB) and 20%-owned Tradewinds (M) were significant contributors, making up 24% of the groups FY11 pretax profit. FGVHs downstream division and joint ventures (50% stake in Felda IFFCO and Trurich) were loss-making in 2011.

Figure 3: FGVHs FY11 gross profit by segment

(RM m)

2,500 464.4 2,000 1,779.5 (233.5) 2,010.4

1,500

1,000

500

0 Plantations Sugar Downstream Gross profit

SOURCES: CIMB, COMPANY REPORTS

Figure 4: FGVHs FY11 pretax profit breakdown

(RM m)

2,500

2,027.02,000

(207.5) 1,819.5 (125.6) (530.0) 1,372.0 329.3 (103.2) 35.9 (54.0)

SOURCES: CIMB, COMPANY REPORTS

1.5 Assets mostly located in Malaysia

Most of the groups operational assets are located in Malaysia. The groups key overseas business exposure comes from (1) an oleochemical plant in the US, (2) soybean and canola crushing and refining facilities in Canada and (3) overseas refineries held through its JV, Felda IFFCO group. In FY11, 70% of the groups7

Felda Global Ventures

August 6, 2012

revenue came from Malaysia, 20% from North America, 5% from Europe, 3% from Asia (ex-Malaysia) and 2% from others.

Figure 5: FGVHs revenue by location

13.7% 2.2% 3.9%

0.3%

4.8% 3.3%

3,000

21.1%2,000 1,000 0 2009

78.5%

70.0%

78.6%

2010

2011

SOURCES: CIMB, COMPANY REPORTS

Felda Global Ventures

August 6, 2012

2.

BACKGROUND ON MAJOR SHAREHOLDER

2.1 FELDA is a government agency

Felda Land Development Authority (FELDA) is a statutory body founded on 1 July 1956 under the Land Development Ordinance (Land Development Act), 1956. Its historical mission was to carry out land development and settlement in new areas to alleviate poverty. From 1959 to 1990, which marked the end of Malaysias resettlement period, FELDA assisted in the resettlement of 114,400 households. By 1990, a total of 853,313ha had been brought under cultivation through FELDAs operations. This comprises 317 settlement schemes and 152 estates in 12 of the 13 states in Malaysia. FELDA is the sole owner of FGVH through its 20% direct stake and 17% indirect stake held through wholly-owned subsidiary Felda Asset Holdings Company Sdn Bhd (FAHC). FAHC was incorporated on 27 March 2012 as an investment holding company.

Figure 6: Shareholding structure of FGVH

FELDA100%

FAHC17%

20%

Public

60%

FGVHSOURCES: CIMB, COMPANY REPORTS

2.2 Connection to settlers

FELDA is currently responsible for ensuring that the agricultural activities undertaken by the settlers under the FELDA scheme are performed in a cost-effective and efficient manner. FELDA and its affiliate corporations including FGVH and FHB are involved in the following activities: managing the operation of the holdings of certain settlers sourcing and supply of inputs required for agricultural process to settlers transporting settlers FFB to Felda Palm Industries palm oil mills for processing downstream activities and sourcing markets for settlers end products training settlers in modern and efficient agricultural methods and practices in order to improve yields offering replanting services to settlers when oil palms and rubber trees are due for replanting. On top of this, FELDA provides financial assistance to settlers when their oil palm estates are still immature. It also offers settlers integrated replanting and long-term management services on their oil palm holdings through contracts entered directly with the settlers.

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August 6, 2012

2.3 Background on FELDA settlers

FELDA estimates the number of FELDA settler households to be 112,635 currently. Its website puts the total estates under FELDA settlers at approximately 520,000ha. Each FELDA settler typically owns 10 (4ha) to 14 acres (5.7ha) of land cultivated with either oil palm or rubber. However, the majority of the settlers estates are devoted to oil palm. Also, each FELDA settlement scheme typically comprises 1,400 to 2,500ha. The FELDA settlers scheme is similar to Indonesias plasma or smallholder scheme except that, in this case, a government agency in the form of FELDA rather than individual plantation owners (in the case of Indonesia) is responsible for developing the smallholder estates. The FELDA settlement scheme was discontinued in 1990 while the plasma scheme in Indonesia is still ongoing.

Figure 7: Basic facts about FELDA settlers (as at March 2012)

Number of settlers Size of settlers' estate Average size of estate per household Average income earned by the settlers Location of settlers 112,635 521,938 ha 4.6ha/settler RM3,047 per month in 2010 P. Malaysia: Northen region: 9% East Coast region: 48% Central region: 17% Southern region: 26% East Malaysia: Sabah: 1%

SOURCES: CIMB, FELDA WEBSITES

2.4 KPF links to settlers and FGVH

Apart from FELDA (government arm) and FGVH (commercial arm), there is a third entity linked to the FELDA group known as Koperasi Permodalan FELDA Malaysia (KPF). KPF is a cooperative for the settlers and employees of FELDA, FHB and FGVH. It was set up on 1 July 1980 to encourage savings and provide FELDA settlers with opportunities to participate in the companies involved in the commercial activities under the FELDA group. KPF currently owns the remaining 51% stake in Felda Holdings Berhad (FHB). Each settler household and eligible employee is eligible to subscribe to up to 250,000 units (RM250,000) in KPF. The cooperative has historically paid out good dividend yields of 10-15%, according to KPFs websites.

Figure 8: Basic facts about KPF

As of 31 Dec 2010 Established in Membership eligibility Number of member Total fund size Average annual dividend return July 1980 1. Felda settlers/employees or 2. Spouse or children of Felda settlers/employees Settler: 193,506 FELDA's employees: 26,701 RM1.64bn 14%

Government agency: Social responsibilities

Company: Commercial activities

Koperasi Permodalan Felda (Established in 1980) 51%

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3.

BUSINESS ACTIVITIES

3.1 PlantationsFGVHs plantation business can be divided into two parts (1) operating the estates leased from FELDA and its estates in Indonesia as well as managing affiliated estates, and (2) trading of crude palm oil (CPO) produce from its own estates and Felda Palm Industries (F Palm). The group operates 355,864ha of FELDA leased and managed estates in Malaysia, of which 347,584ha are leased from FELDA for 99 years starting 1 Jan 2012. Oil palm makes up 97% of the planted area, with rubber (10,308ha) accounting for the remainder of the land leased from FELDA. Approximately 83% of the groups estates are mature. Among the big-cap planters in Malaysia, the group has the second largest estates after Sime Darby. It also owns estates in Indonesia through its 95% stake in PT Citra Niaga and 50% stake in Trurich, a joint venture with Lembaga Tabung Haji, Malaysias pilgrimage fund. PT Citra Niaga owns 14,385ha of estates in West Kalimantan while Trurich owns 42,000ha of estates in east and central Kalimantan. It also indirectly owns and manages 12,746ha of land held by Felda Agricultural Services, a 76.9%-owned subsidiary of FHB. In total, the group has 424,995ha of land across all the businesses that are linked directly to the FELDA group.

Figure 10: Total estates under management by the group

Total Land Under Management

Malaysia (LLA and management agreement) 355,864 ha

Malaysia (Felda Agricultural Services)

Indonesia

50%

95%

Oil Palm Cultivated: 323,588 ha Uncultivated: 19,933 ha

Rubber 10,308 ha in Pen. Msia Timber 2,035 ha

Oil Palm 11,723 ha Other uses 1,023 ha

Oil Palm (Trurich JV) 42,000 ha in East/ Central Kalimantan

Oil Palm (PT Citra Niaga JV) 14,385 ha in West Kalimantan

SOURCES: CIMB, COMPANY REPORTS

The plantation division has historically sold substantially all of the FFB production from the FELDA-leased and managed estates to Felda Palm Industries (F Palm), a subsidiary of FHB. This changed on 1 March 2012 following the inking of a contractual agreement between FGVPM, a wholly-owned subsidiary of FGVH and F Palm, which owns 70 palm oil mills in the country. Under the agreement, F Palm will purchase substantially all of the FFB that FGVPM produces from the FELDA-leased estates. F Palm will produce crude palm oil (CPO) and palm kernel (PK) using the FFB it acquires from FGVPM and others.

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It will then sell to FGVPM a substantial portion of the total CPO that it produces, other than those sold to Delima Oil Products (DOP). FGVPM will resell the CPO to refiners and traders in Malaysia and abroad as well as its joint venture partners and associates. Under the previous arrangement, Felda Marketing, a subsidiary of FHB is in charge of the sale of CPO to third parties.

FELDA-leased land managed land 5.1m MT of FFB

Payment based on extraction rates, net of processing change

Sales to Felda Vegetable Oil Products (FVOP)

Other FFB sources FELDA Settlers Third party FFB FFB from Felda Agricultural services*Production data for the year ended 31 Dec 2011 ** Mills are managed by Felda Palm Industries, (FPI) subsidiary of FHB # Wholly-owned by FGVH. Purchase all CPO produce by FPI other than that sold to DOP

Sales to Third Party

SOURCES: CIMB, COMPANY REPORTS

The group sells all the cup lumps from its rubber plantations to F Rubber Industries, a subsidiary of FHB, as raw materials for the production of rubber products. We estimate that the estate operations alone, after accounting for lease payments to FELDA, make up around 45% of the groups FY11 sales and 80% of its pretax profit. There was no contribution from the trading of CPO as the new arrangement took effect on 1 March 2012.

Figure 12: Share of plantation revenue in 2011

Figure 13: Share of plantation pretax profit in 2011

Title: Source:Plantations;

RM1,091m; Please fill in the values above to have them entered in your re

Oil Palm; RM3,184m; 43%

80%

Rubber; RM90m; 1%

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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August 6, 2012

3.2 Downstream segment

The groups downstream division consists mainly of its operations in North America. These include an oleochemical plant in Quincy, Massachusetts, US held by 100%-owned TRT Holdings and soybean and canola crushing and refining facilities held by 100%-owned TRT-ETGO in Becancour, Quebec Canada. FGVH acquired the oleochemical plant in 2008 through the acquisition of FGV North America from FELDA in 2008. The TRT Holdings facility has an annual production capacity of 150,000 tonnes of fatty acids and 25,000 tonnes of glycerin. The plants utilisation rate was 88% in 2011. Most of the products are sold in the US. TRT-ETGO owns and operates an integrated soybean and canola crushing and refining facility in Canada. The group started construction of this facility in 2008. The facility started operations in September 2010 and produces soy and canola oils as well as soy and canola meals from soybean and canola seeds. As at 31 March 2012, the facility has an annual crushing capacity of 1.05m tonnes of soybeans and canola seeds, annual oil refining capacity of 396,000 tonnes of soy and canola oil and annual meal production capacity of 720,000 tonnes. As part of its turnaround plan for its overseas assets, the group entered into a tolling agreement with Bunge ETGO on 9 December 2011, under which Bunge ETGO will provide the group with canola and soybean seeds to be processed into soybean and canola products that Bunge ETGO will market and sell to end customers. Bunge ETGO is 49% owned by FGVH and Bunge Limited owns the remaining 51%. Following this arrangement, the group will no longer recognise revenue from the sale of soybean and canola products or cost of sales from the purchase of soybean and canola seeds. The downstream division was unprofitable in the past two years, due mainly to weak profit margins, start-up costs and asset impairment. In FY11, this division accounted for 25% of the groups revenue but posted a gross loss of RM234m. The group is also exposed to downstream operations through its associate FHB and JV company, Felda IFFCO. But earnings from this division are captured under the JV and associates earnings of the group.

Figure 14: Share of downstream revenue in 2011

Downstream; RM1,889m; 25%

Figure 15: Historical gross profit/(loss) of downstream division

(RM m)

50 17.0 0 2009 (50)

Title: Source:(22.9) 2010 (233.5) 2011

Please fill in the values above to have them entered in your re

(100)

(150)

(200)

(250)

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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3.3 Malaysias largest sugar refiner

The group bought the sugar business and 20% stake in Tradewinds (M) (TWI MK) from PPB Group for RM1.5bn in January 2010. It reorganised the sugar business and incorporated MSM Malaysia Holdings (MSM MK) on 10 March 2011 as the listing vehicle for its sugar division. MSM Malaysia Holdings was listed on the main board of Bursa Malaysia on 28 June 2011 and boasts a market capitalisation of RM3,585m as at 2 August 2012. Today, the group owns 51% of MSM Malaysia Holdings (MSM MK), which is the largest sugar refiner in the country. MSM produced 57% of the total sugar output in Malaysia in 2011. It owns and operates two sugar refineries in the country. Tradewinds (M) (TWI MK), FGVHs 20%-owned associate, accounted for the remaining 47% of total refined sugar output in Malaysia. The groups sugar refining facilities in Prai and Chuping can produce up to 1.1m tonnes of refined sugar per annum. The refined sugar is packaged and sold under two key brands, Gula Prai and Gula Perlis, in Malaysia and other countries through traders, wholesalers and distributors. In 2011, 84% of the groups output was sold locally and the remaining 16% was exported. All of the groups operating assets are located in Malaysia. MSM derives almost all of its earnings from the sugar refining business. In FY11, this division accounted for 31% of FGVHs revenue and 26% of its pretax profit.

Figure 16: MSMs corporate structure

Figure 17: MSM produced 57% of the countrys 2011 sugar output

MSM Holdings Bhd

100% 100%

Malayan Sugar Manufacturing (MSM)

Kilang Gula Felda Perlis

Tradewinds (M), 43%

100% Astakonas (Logistics)

100% MSM Properties

MSM Holdings, 57%

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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August 6, 2012

Figure 18: Sugars contribution to revenue in FY11

Sugar; RM2,300m; 31%

Figure 19: Sugars contribution to pretax profit in FY11

Title: Source:Sugar; RM359m; 26%

Please fill in the values above to have them entered in your re

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Figure 20: Snapshot of the groups sugar operations in Malaysia

Procurement

Processing

Sales and Distribution

Distribution of finished products Processing capacities Market products under Gula MSM capacity 960,000 Prai and Gula Perlis brands tonnes/annum Sales team based in KL. KGFP capacity 150,000 Domestic refined sugar products tonnes/annum are sold to distributor/retailers Market leader with 57% share of and industrial customers total sugar output in the country in 2011

Breakdown by sales volume in 2011 Domestic 81% of total Local export* 3% of total Export 12% of total Others 4% of total * Sales to domestic customers who use sugar purchased to manufacture products for exportSOURCES: CIMB, COMPANY REPORTS

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3.4 AssociatesThe group owns two key associates: (1) 49%-owned Felda Holdings Berhad (FHB) and (2) 20%-owned Tradewinds (M) (TWI MK), which is listed on Bursa Malaysia. FGVH bought the 49% stake in Felda Holdings from FELDA for RM1.57bn in 2009. FHB is the largest CPO producer in the world based on production volume and the second largest palm oil refiner in Malaysia by capacity (inclusive of its joint venture with Felda IFFCO). It is also among the top three seed producers in Malaysia. Its subsidiary, Felda Palm Industries, owns 70 palm oil mills and four palm kernel crushing plants in Malaysia. The group is the largest palm oil miller in the country with a total annual milling capacity of 20.4m tonnes or 20.5% of the total milling capacity in Malaysia. Its palm kernel crushing plants have a total annual crushing capacity of 1.03m tonnes, representing 14.5% of Malaysian palm kernel crushing facility. In 2011, the group sourced 5.12m tonnes (31.9%) of its FFB from oil palm plantations on FELDA-leased land, 5.3m tonnes (33%) from Felda settlers, 5.4m tonnes (33.4%) from third parties and 0.27m (1.7%) from Felda Agricultural. Almost all the CPO produced by F Palm Industries, other than those used by Delima Oil Palms, will be sold to FGVH as per the agreement signed by the two parties on 1 March 2012. In the downstream business, FHB operates five palm oil refineries in Malaysia with a total capacity of 2.5m tonnes, representing 11% of Malaysias palm oil refining capacity, as well as one refinery in Pakistan through its associate, Mapak Edible Oils and another refinery in China, through its joint venture Voray Holdings. It also produces oleochemicals through its associate, FPG Oleochemicals (FPG). FHBs manufacturing, logistics and other segments include the processing of rubber into rubber products, logistical services to support its own operations, provision of products and services to third parties, including seedling and fertiliser production and R&D activities for its plantation business as well as sales, marketing and trading of its own products. The group is also engaged in cocoa product production, livestock operations and activities such as bulking, transportation and information technology.Figure 21: Snapshot of Felda Holdings Bhds business activities

Figure 22: Market share of refining capacity in Malaysia

Total refining capacity: 24.0m MT/yr

SOURCES: CIMB, COMPANY REPORTS

20%-associate Tradewinds (M) is listed on the Bursa Malaysia and has a market capitalisation of RM2,493m (as at 2 Aug 2012). It is a significant agricultural producer in Malaysia. It owns two sugar refineries in Malaysia and controls 43% of the sugar market in the country. It also owns 100,700ha of planted estates through its listed plantation arm, Tradewinds Plantations, making it the seventh largest listed plantation company by planted area in Malaysia. The group is also Malaysias largest rice miller and sole rice importer and distributor through its 72.57% stake in Padiberas Berhad. FGVHs associates have historically contributed RM329m-391m to group earnings, making up 24-75% of the groups FY09-11 pretax profit.

0 Rice Plantations Sugar Others Elimination EBIT Finance cost PBT

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

3.5 Joint ventures

The group has two key joint ventures: (1) a 50% stake in Felda IFFCO, and (2) a 50% stake in Trurich Resources. Felda IFFCO is a joint venture with IFFCO group, a mass-market consumer goods manufacturer and marketer based in the United Arab Emirates. Felda IFFCO owns two refineries in Malaysia as well as four palm oil refineries located in Indonesia, China, Turkey and two downstream processing facilities in China and South Africa with a total refining capacity of 2.1m tonnes as at 31 March 2012. It also operates sales and marketing offices in France and Spain and holds a 17% stake in AA Co, the largest beef cattle producing company in Australia by herd size. Trurich Resources, a joint venture with Lembaga Tabung Haji, is involved in oil palm cultivation in Indonesia. As at 31 March 2012, it had 42,000ha of plantation land in east and central Kalimantan, out of which 13,905ha (33%) are planted.

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Figure 27: Key assets/investments by Felda IFFCO

Major Assets Selangor, Malaysia Johor, Malaysia Batam, Indonesia Effective Interest 50.0% 37.5% 25.0% Additional information Refine both CPO and PKO into bulk and packed products for sale to other Felda IFFCO entities and external customers. Total refining capacity: 542,500 tpa. Refine CPO into bulk RBD products for sale to industrial users both in the Malaysian market and overseas markets, including Southeast Asia, the United Arab Emirates, South Africa and North America. Total refining capacity: 490,000 tpa. Refine CPO into bulk RBD products for sale to overseas markets, including South Asia, North Africa and the Middle East. The CPO required for its operations is sourced from Tabung Haji Indo Plantation (THIP) and from other third parties within Indonesia. Total refining capacity: 525,000 tpa. The China operations do not conduct significant refining or downstream processing activities and, accordingly, do not have meaningful capacity utilisation rates. Currently, the China operations focus mainly on refreshing or double fractionating oils on a tolling basis. Total refining capacity: 630,000 tpa. The Turkey operations refine soft oils, including canola, soy, olive and palm oils, sourced from the local market and FGVH's Malaysian operations under Felda IFFCO to produce specialty fats such as margarines for sale to the retail and food service sectors. Total refining capacity: 52,500 tpa.

Dongguan, China

48.5%

Izmir, Turkey

50.0%

Associate company AA co 8.5% Largest cattle producing company in Australia by herd size.

Figure 30: FGVHs share of results of associates and joint ventures

Share of results from associates

Share of results from jointly controlled entities

350 300 250 200 150 100

SOURCES: CIMB, COMPANY REPORTS

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4. COMPETITIVE ADVANTAGESIn this section, we take a closer look at FGVHs key strengths relative to its peers.

4.1 Economies of scale

FGVH is the third largest listed palm oil operator globally and it produced 5.5% of the total FFB production in Malaysia in 2011. In 2011, Malaysias planted oil palm area stood at 5m ha. At 323,588ha, FGVHs planted oil palm estates in Malaysia accounted for 6.4% of the Malaysias total planted area and 3% of total planted oil palm area, globally. The groups large-scale estate operations enable it to enjoy better bargaining power when it sources raw materials like fertiliser and sells its products. Its oil palm estates are also larger than its peers. For instance, its Sahabat palm oil estates in Sabah are located in one contiguous block of 95,542ha, representing 28% of the groups oil palm estates on the FELDA-leased land. This allows the group to achieve better efficiency through lower transportation costs and optimal sharing of infrastructure (housing, mills, refineries, jetties, power plants and security and management resources in the estates. This enables the group to achieve lower estate costs at some of its estates compared to its smaller peers.Figure 31: Third largest palm oil operator in the worldSIME 4.6% GGR 3.1% FGVH 2.9% WIL 2.1% IFAR/SIMP 1.8% TWB* 0.8%

Figure 32: FHBs mills produced 17% of Malaysias 2011 CPO

('000 tonnes)

20,000 FHB 18,000 16,000 14,000 12,000 Malaysia (excl. FHB)

Total planted area: 11.7m ha

10,000 8,000 6,000 4,000

14,852

15,618 14,005

Other 84.8%

2,000 -

3,112 (17%) 2009

2,989 (18%) 2010

3,293 (17%) 2011

*Planted area as at 31 Dec 2010

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

4.2 Integrated operations

The groups palm oil operations are totally integrated. The activities of FGVH and its associate FHB span all aspects of the palm oil product value chain: (1) R&D and seedling production, (2) estate operations, (3) sourcing and processing of fresh fruit bunches for its mills, (4) processing of CPO into cooking oil, and (5) transportation and distribution of these products through its distribution channels. Through its integrated palm oil model, FGVH is able to capture every part of the value chain of the palm products. This will also enable it to control the quality of its products better, which is a plus given increasing consumer demand for traceability of products consumed.

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Figure 33: Integrated palm oil operations enable the group to capture every part of the palm oil value chain

Production of 1.6m tonnes of RBD products

FGVH

FHB (associate) & Felda IFFCO (JV)

SOURCES: CIMB, COMPANY REPORTS

4.3 Strong R&D support

Its investments in research & development in oil palm breeding and selection, biotechnology, agronomy and crop protection through FHBs subsidiary, Felda Agricultural give the group direct access to high-yielding planting materials for its new planting and replanting programmes for the estates of the group as well as settlers. Felda Agricultural has a long track record in R&D spanning more than 40 years. The Felda Yangambi seeds produced by the group are capable of achieving FFB yields of above 30 tonnes/ha and OER of 25% based on field trials. This will significantly improve oil palm yields for the groups and settlers estates that are planted with these superior planting materials. The better yields will flow through to its milling profit margins and oil extraction rates. The R&D team is also looking into biomolecular research and recently launched an applied technology division, which focuses on applying new technologies to improve the operations and efficiencies of its operations.

4.4 Captive supply of fruits from settlers and leased estates

The groups FELDA-leased and managed estates and FELDA settlers supply 65% of FHBs milling capacity. FHBs mills have a captive market for FFB from these two parties, which in total own around 850,000ha or 17% of planted oil palm estates in Malaysia. Under a contractual agreement, FELDA-leased estates will sell substantially all of their FFB output to FHBs mills. The FELDA settlers are obligated to sell all their FFB to FHBs mills based on the agreement signed with FELDA. As such, the group is able to build bigger mills to achieve a lower cost of production. Its geographically diversified milling operations in the country also allow the group to purchase fruits from third-party estate owners in the country to raise the utilisation of its mills. It procures 33% of the FFB supply for its mills from third parties. In 2011, its milling division processed 16.1m tonnes of FFB, representing 17.7% of Malaysias total production. Its big market position gives the group stronger pricing power when it sells to the market.

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Figure 34: 2011 sources of FFB for FHBs mills

Felda Agricultural Services; 2%

Figure 35: Market share of FHBs capacities in Malaysia

25%

Third parties; 33%

Title: Source:20%

20%

Please fill in the values above to have them entered in your re

16%

15% 11%

FGVH's leased land from FELDA; 32%

10%

5%

FELDA Settlers ; 33%

0% Mills PK Crushing Refinery

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

4.5 Largest sugar producer in Malaysia

The group also owns the largest sugar refinery in the country. The larger scale of its operations relative to its peers allows it to purchase and store raw materials when market prices are favourable and optimise its operating costs through a greater volume of production. The MSM facility is strategically located adjacent to the Prai river near Penang Port and has onsite a dedicated jetty that enables barges to easily and cost-effectively offload imported raw sugar from the large vessels into storage for use in the refining process. Its MSM facility is also located adjacent to the railway track which allows the group to transport its products to its warehouses in the central and south regions of Peninsular Malaysia. This places the group in a more competitive position than its peers in terms of transport costs and distribution. Its other competitive advantage lies in its effective logistic infrastructure which integrates its storage, packing and distribution network to ensure timely delivery of the right quality products in the right quantity to its customers. The group has also built strong relationships with a broad base of 260 customers in Malaysia. The local sugar division also faces limited competition in the domestic market as there are currently only two sugar producers. FGVH owns stakes in both players.

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Figure 36: Daily raw sugar melting capacity

(tonnes/day) 3,500

Figure 37: Breakdown of sugar refining capacity

GPT 13%

Title: Source:MSM 47%

3,000

Please fill in the values above to have them entered in your re

2,500

2,000

1,500

1,000

500

CSR 31%

MSM KGFP CSR GPT

KGFP 9%

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

4.6 Experience and professional management team

FGVH has a professional and experienced management team in the entire agribusiness value chain. Members of its key management team have on average 30 years of relevant experience in related fields. For instance, its group president and CEO has 42 years of experience in the agriculture industry, is a former CEO of Golden Hope Plantations and has served as the chairman of Malaysian Palm Oil Board. Its head of global plantations has over 25 years of experience in the agriculture industry while the head of the downstream division has over 30 years of relevant experience. The top four in its sugar division have between them more than 90 years in the Malaysian sugar industry.

4.7 Strong parentage

We believe the groups association with its parent FELDA is a plus. FELDA has a strong reputation for successfully establishing the settlement programme in Malaysia. Many countries are currently following or studying the FELDA model for implementation in their own countries in order to develop their agriculture industry, reduce poverty and improve employment. We expect the groups strong association with FELDA to help it to develop its overseas footprint.

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5. OUTLOOK 5.1 Beneficiary of strong demand prospects for CPO

We believe FGVH, as one of the largest palm oil operators in the world, is well-placed to benefit from the bullish long-term demand prospects for palm oil. We expect the usage of palm oil for food and non-food purposes to increase due to its attractive pricing relative to other edible oils, rising per capita consumption in China and India, higher usage in the US due to mandatory transfat labelling laws and rising usage of palm oil in Indonesia and Malaysia due to biodiesel mandates. Palm oil is currently the cheapest edible oil in the market. This enabled it to raise its global edible oil market share. China, India and Pakistan are the three largest consumers of palm oil, consuming a combined 41% of global palm oil imports in 2011, based on statistics from Oil World publication. We are positive on the potential demand growth in all these three countries in view of their rising affluence, low average per capita edible oil consumption relative to the global average and insufficient domestic oilseed production. Annual per capita consumption of edible oils is 11.4kg in India, 25kg in China and 21.6kg in Pakistan, still below the worlds average of 25.7kg. The increasing use of edible oil for biodiesel production will lift the growth of non-food usage of edible oils. Currently, around 10% of the global supply of palm oil is used for biodiesel production. The demand growth for biodiesel will be supported by rising biodiesel mandates in Malaysia, Indonesia, Argentina, Brazil and US. However, biodiesel demand from Europe may slow down as governments may cut back subsidies to reduce their fiscal deficits.

SOURCES: CIMB, POC 2012

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5.2 Weather concerns will prop up CPO prices

CPO prices started the year on a positive note due to concerns over the impact of drought on soybean crops in South America, rising crude oil prices, improving global economic prospects and better liquidity. We remain positive on CPO prices in 2H on the back of a smaller-than-expected soybean crop from North America, the result of unexpectedly low rainfall, which will tighten the supply of soybean oil and weaker 1H palm oil production from Malaysia. Palm oil supply is expected to grow at a slower rate as Malaysian estates are projected to report lower production following the weak performance (-9% yoy) in 1H12. Demand for edible oil for food will remain favourable while growth in biodiesel demand may slow in view of slower rollout of mandates. We think CPO prices may spike in the later part of the year if the drought in Midwest US persists and converges with a potential El Nino in 2H of this year. In our recent regional plantation report Mercury Rising, we indicated that if these two events happen concurrently, CPO prices may rise to as high as RM3,500 per tonne from the current level of RM2,950 per tonne. The other factor that is supportive of CPO prices is the widening discount against soybean oil, which may lead to substitution. We estimate that every RM100 per tonne change in CPO prices will impact our FY13 net profit forecast for the group by 3%.

SOURCES: CIMB, USDA

SOURCES: CIMB, USDA

Figure 45: US seasonal drought outlook

SOURCES: CIMB, NOAA

Felda Global Ventures

Figure 46: US soybean crop progress

(Cumulative %)

2012

2011

2010

100 90

Planted80 70 60

Blooming Emerged Setting Pods Harvested

Dropping Leaves50 40 30 20 10 0 22-Apr 29-Jul 4-Nov

SOURCES: CIMB, USDA

5.3 Room to improve yields

Management has gained full control of the FELDA-leased estates through the land lease agreement signed with FELDA on 1 November 2011. This will allow the group to implement initiatives to improve the productivity and future earnings of the estates. There are plans to consolidate the management of estates to 15,000ha per plantation manager to achieve better economies of scale and reduce the cost of production. It will continue to implement best agriculture practices, including application of the optimal level of fertiliser based on leaf and soil sampling and ensuring stable supply of labour at its estates to maintain, collect and harvest FFBs. New KPIs and incentives will be introduced to ensure that the interests of the various parties in the group are aligned. To improve the age profile of its plantations, it plans to accelerate its replanting programme to 15,000 per ha, (representing around 5% of its planted estates). The group will use high-yielding planting materials to ensure that the new plantings have stronger FFB yields, offsetting the lower yields from its older palms. This will help ensure a stable supply of FFB from its estates. We expect the group to deliver lower FFB yields in the current year as it may take time for the new initiatives to bear fruit, in line with the weaker production achieved by the country in 1H12. Should the group succeed in raising yields at its estates in the current year, it would mean upside potential to our FFB yield forecast. Its estates average FFB yield of 19.9 tonnes/ha in 2011 is in line with the industrys average but below most of its Malaysian-listed peers. We believe that this is due to its older estates as the average age of its estates is 17 years, above that of most of the planters in our coverage whose estates range from 10 years to 14 years. We estimate that every 1 tonne/ha improvement in yields at the estates would raise the groups earnings by 6%.

SOURCES: CIMB, COMPANY REPORTS

Felda Global Ventures

Figure 53: Areas planted with new materials

13,665 12,736 12,019

14,428

8,2388000

6,3196000

4,6724000

5,213

2,1122000 0 2002

2,712

2003

2004

2005

2006

2007

2008

2009

2010

2011

SOURCES: CIMB, COMPANY REPORTS

5.4 Turnaround plan for its Canadian downstream unit

The groups integrated soybean and canola crushing and refining facilities in Canada have been unprofitable since they started operations in 2010 due mainly to unfavourable market conditions and internal restructuring. Part of the losses stemmed from asset impairment charges. To turn around this operation, the group has entered into a tolling agreement with Bunge ETGO which will take charge of the procurement and sales of soybean and canola products for the plant as its partner Bunge Limited, a leading company in soy products and soft oils globally, has better market intelligence and a wider distribution network for these products. This arrangement will allow the group to concentrate on improving the operational efficiency of its plant. The group is taking steps to improve the performance of its plant by purchasing a fifth expeller unit to improve the efficiency of its crushing facility. It is also taking steps to improve the supply chain logistics. We believe this will boost the groups earnings, which have been dampened by large losses from its overseas downstream unit.

Figure 54: Historical gross losses at its downstream division

(RM m)

50 17.0 0 2009 (50) (22.9) 2010 (233.5) 2011

(100)

(150)

(200)

(250)

SOURCES: CIMB, COMPANY REPORTS

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5.5 Keen to expand estates and processing facilities

The group is keen to acquire existing planted and unplanted estates in Southeast Asia and Africa to expand its revenue and earnings base. Palm oil will remain the dominant crop though there are plans to expand its rubber exposure to complement its palm oil business. FGVH plans to plant rubber trees in areas where palm oil cultivation is unsuitable. The group aims to raise its rubber plantation landbank from 10,308ha currently to 30,000ha. In pursuing M&As, FGVH can leverage its ties with FELDA which has a strong reputation in the global market. In the sugar division, there are plans to raise domestic refining capacity and look for overseas expansion opportunities for its refining business. The expansion plan will enable the group to manage its capital better and grow its earnings base and revenue. Successful acquisition of planted estates at attractive valuations would be earnings accretive to the group.

Figure 55: Expansion plans for its sugar refinery

(000 MT/annum)

1,600MSM KGFP

1,400 1,200 1,000 800 600

200

150

1,300 960

400 200 0 2011 2015/2016

SOURCES: CIMB, COMPANY REPORTS

5.6 Expanding its downstream capabilities

FGVH intends to grow its downstream capabilities and market access in order to gain better visibility on product flows and enhance the margins of its upstream division. It plans to expand its downstream segment through the acquisition of refinery assets, consumer packed plants and bulking facilities where the group has limited operations. There are plans to enter into strategic partnerships in markets where it will enable the group to (1) gain access to key target manufacturers through reliable supply of certified sustainable palm-based components, (2) develop products in palm oil consumer products globally, (3) capture higher margins from increasing global demand for specialty fats, and (4) leverage its partners distribution network to penetrate overseas markets rapidly. We are more positive on the groups plans to seek partnerships to allow it to gain distribution networks and raise the sale of value-added products in key markets. We are less optimistic on its plans to raise its refining capacity as we think there may be a global refining margin squeeze in the next few years due to rapid expansion of downstream capacity in Indonesia. This may depress global refining margins but could provide opportunities for the group to penetrate key markets during the downturn.

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Figure 56: Strong refining margin in Indonesia encouraged plant-ups

(RM/MT)

400

MAL Refiner Net Margin

IND Refiner Net Margin

SOURCES: CIMB, MPOB

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6. SWOT ANALYSISFGVHs main strength is its large-scale and integrated palm oil operations, which provide it with better economies of scale than its smaller peers. We believe its large estates allow the group to procure raw materials like fertiliser at competitive costs and attract workers more easily than smaller estate owners. It also has secure feedstock supplies for its palm oil milling operations from the settlers and FELDA-leased land totalling 850,000ha. Its associates control 17% of Malaysias CPO output gives it better bargaining power in the sale of its products. The groups integrated palm oil model allows it to capture value add at every point of the palm oil value chain. Its estates are fairly efficient, generating a yield of 19.9 tonnes/ha although 16.9% of the estates have been in existence for more than 25 years. FGVHs strong connection with FELDA gives it the upper hand when vying for overseas plantation and downstream assets. The various avenues that the group could take to improve its earnings include boosting the productivity of its estates and its mills oil extraction rate. Within the region, it could also scout for estates with a young age profile to improve the age profile of its estates. We believe its plans to scour for more downstream assets should add to earnings if the group has a strong local partner and distribution network. There is scope to improve the efficiency and operating performance of its overseas downstream operations which have been loss-making over the past two years. The key weakness of the group is that 53% of its estates are above 21 years and are due for replanting in the next few years. Also, FGVH could lose control of the FELDA-leased land if FELDA decides not to renew the leases. The profitability of its plantation business is lower than its peers as the group needs to pay leases of around RM500-550m a year to FELDA for the estates and its replanting costs are higher than its peers in Malaysia. The groups Malaysian refining businesses are facing stiff competition from Indonesian refiners. Furthermore, FFB output growth in Malaysia is expected to slow over the next few years due to limited arable land and worker shortage. This may limit the growth potential of its processing business in Malaysia. The group lacks competitive advantage in its soybean and crushing facilities in Canada and has a mixed track record in overseas expansion. The key threats to FGVH are lower CPO price and overcapacity in the palm oil processing industry in Malaysia, leading to lower processing margins. Other external factors that could affect the groups businesses are poor weather, changes in government regulations and increased competition in the market.Figure 57: SWOT analysisStrengths Large scale and integrated operations Captive supplies of FFB from FELDA settlers Exprerienced and professional management Strategic and well-located estates Strong parentage Weaknesses 53% of estates are over 21 years old Estates achieve lower profit per ha vs. peers Refining division hit by uncompetitive feedstock costs Limited land bank for expansion Overseas downstream activities were loss-making Opportunities Room to improve yields and OER at its estates Accelerate replanting program M&A to improve age profile of estates Brings in expertise through joint ventures Turnaround its downstream division Threats Lower CPO selling prices Overcapacity in global processing industry Adverse weather conditions at its estates Higher palm oil taxes and unfavourable export tax Political risks

SOURCES: CIMB

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7. RISKS 7.1 CPO price risk

Approximately 80% of the groups gross profit is sensitive to movements in CPO price, which we believe will peak in 2Q. We estimate that every RM100 per tonne change in CPO price would shave 3% off FGVHs earnings. The group can mitigate the fall in CPO price by locking in a significant portion of its future production at a fixed CPO price. Also, the group may fetch below-market prices for FFB crops harvested by its older estates as the millers typically use a lower oil extraction rate in deriving FFB prices for older estates.

7.2 Weather risk

Rainfall deficits or excessive rainfalls at the groups estates due to global warming or the impact of El Nino or La Nina conditions may adversely impact its FFB yields and production as well as oil extraction rates achieved by its mills. These may affect its plantation earnings if the decline in production is not fully compensated by higher selling prices. The groups production and supply of FFB were adversely affected by El Nino conditions from June 2009 to April 2010. The La Nina condition in 2011/12, which led to drier weather in South America and wetter weather in South East Asia, ended recently. While there is talk that El Nino may resurface, the view of most weather experts is that it is too early to confirm this weather pattern. An El Nino condition may bring drought to Southeast Asia which may lead to lower FFB production from the group as well as settlers estates. This could result in lower crops for its milling division and a lower profit margin. In the past, the price increase more than compensated for the decline in yields.

SOURCES: CIMB, NOAA

7.3 Dependent on foreign workers

The Malaysian plantation industry is heavily dependent on foreign workers to remain competitive. Foreign workers account for 84% of the groups estates workers as at 31 March 2012, slightly higher than the industrys average of 76%. To retain the workers, the group has put in place competitive remuneration packages and housing amenities. Any shortage of labour due to new immigration rules or labour policy may affect the productivity of its estates. The rapid expansion of estates in Indonesia has increased competition for Indonesian estate workers. As a result, the cost of hiring foreign workers has also been rising for the group. Malaysias recent proposal for a minimum monthly wage of RM800 in Peninsular Malaysia to RM900 is expected to raise the cost of estate workers over time. We gathered that estate workers are generally paid between RM700 and RM2,000 per month inclusive of37

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productivity payments. We have incorporated a 5% increase in labour costs in our forecasts for the group to account for this.

Figure 60: Workforce distribution in Malaysian estates

SOURCES: CIMB, POC 2012

7.4 Replanting programme

FGVH plans to replant around 60,292ha of its old estates over the next four years. This may affect the groups near-term yields as the replanted estates represent around 17.6% of its total estates and will not generate any yields during the first three years after replanting. The group will rely on rising yields from its young estates, which account for 13.4% of total planted area, to mitigate the impact of loss of production from its replanted areas.

7.5 Dependence on land lease from FELDA

The groups FFB production is highly dependent on the use of the land leased from FELDA. Under the land lease agreement, FELDA is permitted to retake any portion or all of the leased land for any reason after giving notice of 6-18 months for land of 10,000ha or less and 18 months for any portion of land that is more than 10,000ha. In addition, FELDA is obligated to pay compensation according to the terms of the lease, taking into account the loss of expected future profit. One of the agreements also provides that for 19,854ha of the FELDA-leased land, FELDA may terminate the agreement for all or part of the land if FELDA were to lose possession over any portion of the land to third parties. Should the group lose the right to use any of the land, it may affect its profitability and valuations.

7.6 Potential changes in palm oil taxes

The government imposes cess, windfall tax and sales taxes in Sabah as well as a host of other taxes on the plantation business in Malaysia. A hike in any of these taxes would dampen the groups plantation earnings. We believe that the government is unlikely to raise any of these taxes ahead of the general election as it would have a negative impact on the income of the smallholders and settlers. However, we believe that there is a good chance that the Malaysian government may consider reducing the export tax on crude palm oil to help the local refiners to regain competitiveness against Indonesian refiners. If implemented, this may result in lower domestic selling prices and dent the profitability of its plantation operations.38

SOURCES: CIMB, NSTP

Figure 62: Malaysias export duty framework

Crude Palm Oil On the first RM 650.00 per tonne Plus on the next RM 50.00 per tonne Plus on the next RM 50.00 per tonne Plus on the next RM 50.00 per tonne Plus on the next RM 50.00 per tonne Plus on the balance Nil 10% 15% 20% 25% 30% Processed Palm Oil Nil Nil Nil Nil Nil Nil

SOURCES: CIMB, MPOB, MINISTRY OF TRADE OF INDONESIA

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7.7 Weaker palm refining margins in Malaysia

The Malaysian refiners are adversely affected by Indonesias new export duty structure which gives its refiners a tax advantage over Malaysian producers in the export of refined palm oil products. The issue is compounded by the issuance of CPO duty-free quotas, which reduce the availability of domestic CPO for the local refining industry. A relatively high proportion (35%) of the groups total refining costs is fixed. As such, any reduction in the utilisation rates of its refining facilities would increase its unit cost. This affects the groups refining profitability in Malaysia as the group has the second largest refining capacity in the country. We think that currently, refiners in Malaysia are unprofitable. We estimate that the Malaysian refining business accounted for 1% of the groups FY11 pretax profit.

8.0% 11.0% 9.0% 13.5%

8.0% 20.0% 10.0% 16.0% 9.0% 22.5% 11.5% 18.5%

SOURCES: CIMB, MINISTRY OF TRADE OF INDONESIA

7.8 Sugar industry is regulated by the government

All of the groups domestic sugar sales are subject to a price ceiling set by the government, which means that future rises in raw material costs may not be matched by increases in the price ceiling or sugar subsidy. This may have a significant impact on the groups profit margin and the profitability of MSM Holdings. The groups sugar business is highly dependent on imported raw sugar. The existing long-term supply contracts fixed the purchase price for a substantial portion of MSM Holdings raw sugar requirements at US$0.26 per lb (including freight). If raw sugar prices decrease to levels below the purchase price under the long-term supply contracts, the group may be obligated to purchase a substantial portion of its raw sugar at prices that are higher than the international market price, which may make it uncompetitive. The group pays prevailing market prices for its remaining raw sugar needs. As a result, higher raw sugar prices would be negative for the group, potentially leading to weaker margins if sugar prices are not raised to compensate for the higher costs. The import of refined sugar into Malaysia is restricted by the government. If it relaxes this policy, it may lead to more competition from overseas refiners and may affect the profitability of the group.

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Figure 65: Historical raw sugar futures

SOURCES: CIMB, BLOOMBERG

7.9 Forex fluctuations

A substantial portion of the groups FY11 revenue is denominated in US$ and some of its raw materials such as fertiliser are purchased in US$. A stronger ringgit would be negative for local CPO prices though the impact would be mitigated by lower fertiliser costs and reduced capex. But a firmer ringgit is good news for MSM Holdings as it lowers its raw sugar costs in ringgit terms though the impact will be tempered by lower export sales. The bulk of MSM Holdings FY11 cost of sales was denominated in US$. Our house view is for the ringgit to strengthen by 4.4% in the current year. This will be slightly negative for CPO price.

Figure 66: Ringgit has recently weakened against the US$

SOURCES: CIMB, BLOOMBERG

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August 6, 2012

7.10 Pest and disease risks

Outbreak of diseases or pest infection at its estates may result in loss of crops and higher expenditure, leading to lower profitability.

7.11 Execution risk

Management may not be successful in its efforts to expand its estates, venture into downstream value-added for its palm products and turn around its downstream overseas operations. Failure of the groups efforts to raise efficiency, planned capacity and productivity at its manufacturing facilities may negatively impact the groups earnings prospects.

7.12 Dependent on its associate FHB

FGVH sells virtually all of the FFB it produces from its oil palm estates on FELDA-leased land to Felda Palm Industries, a subsidiary of FHB, under a contractual arrangement signed between the two parties on 1 March 2012. In the event of termination of these arrangements, the group would need to find alternative buyers for its palm produce. In addition to this, the group is dependent on FHB to provide it with R&D services, supply raw materials like fertiliser for its plantation division and purchase cup lumps produced on its rubber plantations. It also depends on the uninterrupted operations of FHBs production, storage and distribution facilities and various modes of transportation from those facilities to deliver CPO and other products among its various facilities and to its customers.

7.13 Risks relating to FHB operations

FHB obtains approximately one-third of its annual requirements of FFB from FELDA settlers and another one-third from third parties. Any significant interruption in the supply of FFB from these two parties as well as FELDA-leased land could have a material impact on FHBs production of CPO. FHB may also be subject to litigation on its various businesses. In the past three years, five material civil suits have been brought against FELDA and F Palm Industries in respect of the determination of the quality and grading system for the sale of FFB that FHB believes are material. FHB believes that there are reasonable grounds to defend these claims. The government regulates the retail price of palm olein-based cooking oil and allows producers to claim a subsidy to compensate for their loss of profit. Should the government eliminate or reduce the cooking oil subsidy, it may subject the group to greater competition and may result in lower sales.

SOURCES: CIMB, COMPANY REPORTS

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8. FINANCIALS 8.1 Historical earnings based on proforma figures

The groups historical financial statements below are based on proforma figures, which assume that it had signed the land lease agreement with FELDA throughout the historical three years presented. As such, the historical earnings statement is the combination of the consolidated financial statements of FGVH and the carved-out historical financial information of the estates.

8.2 Plantation and sugar dominate revenue stream

FGVHs sales can be broken down into three key segments: (1) plantations, (2) sugar, and (3) downstream.

Figure 68: Historical breakdown of revenue by segment

2,300 (30.8%) 2,148 (37.0%) 989 (17.0%) 3,286 (44.0%)

1,889 (25.3%)

606 (21.0%) 2,274 (79.0%)

2,668 (46.0%)

SOURCES: CIMB, COMPANY REPORTS

The plantation segment, which reflects the estate operations, was the top revenue contributor at 44% of the groups proforma revenue in 2011. Historical sales from the plantation division came from the sale of fresh fruit bunches (FFB) and cup lumps (rubber) from its estates. FFB sales accounted for 97-98% of its total plantation revenue, with rubber and others making up the remainder. The groups plantation revenue hinges on production, sales volume and selling prices achieved for its palm and rubber products. Plantation revenue rose by 17.3% in FY10 as the higher selling prices achieved offset the lower volume of FFB harvested and sold due to adverse weather. In 2011, the groups plantation revenue improved 23.2% due to a 14.6% rise in average selling prices (ASP) of FFB and a 7% increase in FFB sales volume. The groups historical plantation revenue included real estate, property management, sale of foods and beverages and management fees of RM8.8m to RM12.6m. We do not expect the revenue stream from this division to recur as the group sold FGV Middle East and Arabia, which are involved in provision of real estate and F&B services, to FELDA in 2011.

Title: FFB Production (LHS) Source:

700 Avg FFB selling price (RHS) 600

Please fill in the values above to have them entered in your re

5,100 5,000 4,900

400

300

4,856200

45.6 (2.0%) 2,219.2 (97.6%)

2009

2,596.5 (97.3%)

4,800 4,700 4,600 100

0 2009 2010 2011

2010

2011

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

The sugar division represents contribution from MSM Holdings and was the second largest earner for the group in FY11. This business segment came into the picture in 2010 when FGVH completed the acquisition of the sugar business from PPB Group inclusive of a 20% stake in Tradewinds (M) for RM1.5bn in January 2010.

SOURCES: CIMB, COMPANY REPORTS

MSM derives all its revenue from the sale of its refined sugar products and molasses as well as subsidiaries received from the government. Subsidies accounted for 22.4% of the groups revenue in FY10 and 6.7% in FY11. As such, its revenue is dependent on its sales volume, average selling price achieved for its refined sugar products and molasses and the subsidy provided by the government. Sugar segment sales increased 7.1% in FY11 due to a 38.1% rise in export sales from RM250.6m to RM346m and a 6.5% increase in average selling prices of refined sugar products from RM2,110 per tonne to RM2,248 per tonne. The increase helped to offset the reduction in government subsidies for refined sugar from RM479.9m to RM154.6m. The government raised the retail price of local refined sugar by 20 sen/kg and reduced the subsidy by the same quantum on 10 May 2011.

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Figure 72: Breakdown of revenue from sugar business

(RM m)

Sugar subsidies

Refined sugar

Molasses

2,500

17 (0.8%)2,000

17 (0.7%)

1,500

1,650 (76.9%)1,000

2,128 (92.6%)

500

480 (22.4%)0 2010

155 (6.7%)2011

SOURCES: CIMB, COMPANY REPORTS

Downstream sales accounted for 25.3% of our proforma sales, mainly reflecting revenue from the sale of oleochemicals as well as canola and soybean products from its US and Canada downstream facilities. This division was the third largest revenue contributor in the past two years. Sales jumped by a whopping 90.9% in 2011 to RM1,889m, reflecting a full 12 months of revenue from soybean and canola products. The increase was partly offset by lower sales volume for its oleochemical products.

*In 2010, percentage of sales to "other countries" was approximately 0.002%

SOURCES: CIMB, COMPANY REPORTS

8.3 Downstream has the largest share of cost of sales

The downstream division accounted for 39% or the largest share of the groups total cost of sales in FY11. Cost of sales from this segment increased significantly in FY11 due to a full-year contribution from its canola and soybean facilities in Canada. The group recorded RM1.06bn cost of soybean and canola, reflecting a full-year cost of sales for the groups soy and canola business compared to a 3-month contribution of RM348.7m in FY10 as the soy and canola business started operations in Sep 2010. On top of that, the FY11 cost of sales included an impairment charge of RM164.7m for property, plant and equipment compared to RM17.7m in FY10. The charge mainly reflects the difference between the estimated recoverable amount of the groups refinery assets and the carrying value of the assets.46

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The bulk of the downstream cost of sales in FY09 and FY10 relates to purchases of tallow and lauric oils used in the groups oleochemicals business. The 71.6% jump in FY10 cost of sales reflects the maiden inclusion of the cost of the soybeans and canola seeds. The impairment charge of RM17.7m in FY10 relates to the groups oleochemical business. The sugar divisions cost of sales made up 33.6% of the total cost of sales in FY11. This comprises the cost of raw sugar, energy and utilities, packaging and other supplies as well as depreciation of operating assets. Total cost of sales climbed 7% in FY11 due to higher raw sugar prices in the international market though this was partially offset by a drop in realised fair value losses on sugar futures contracts from RM25.9m in FY10 to RM9.3m in FY11. Raw sugar costs are the main component of the groups proforma cost of sales for this division, making up 96% of the total cost of sales. Plantation cost of sales comprises mainly fertiliser, cultivation, managing and harvesting of FFB as well as labour costs. The cost of sales for this division jumped 22% in FY11 due to higher cost for staff, transportation and fertiliser, in line with the higher volume of FFB sold. Harvesting and cultivation is the primary cost of sales in the plantation segment, making up 50.5% of proforma cost of sales.

Title: Plantations Source:

Please fill in the values above to have them entered in your re

0 2009 2010 2011

*Includes impairment of property, plant and equipment of RM17.7m for 2010 and RM164.7m for 2011

2009

2010

2011

*Includes impairment of property, plant and equipment of RM17.7m for 2010 and RM164.7m for 2011

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

The main components of the groups historical cost of sales can also be broken down into the following: (1) raw materials and chemicals, (2) harvesting and cultivation, (3) staff and labour expenses, (4) replanting costs, (5) impairment of plant, property and equipment, (6) energy and utilities, (7) maintenance and repairs, and (8) others. Raw materials for purchases formed 60% of FY11 total cost of sales, followed by harvesting and cultivation costs which made up 14% of total costs.

SOURCES: CIMB, COMPANY REPORTS

8.4 Plantation is the most profitable division

The plantation division was the top gross profit generator of the group over the past three years. Gross profit from this division soared 69% in FY10 and 24% in FY11 due to higher ASPs achieved for its FFB and rubber products. Gross profit margin from this division was fairly stable at 54% in FY10 and FY11 as the increases in selling prices were in line with the rise in cost of sales. The sugar division recorded an 8% improvement in gross profit in FY11 due to higher export sales and profit margins. Gross profit margin for the sugar division rose by 0.2% pts to 20.2% in FY11. Losses from the downstream division widened from RM22.9m in FY10 to RM233.5m in FY11, due partly to a spike in impairment charges on property, plant and equipment from RM17.7m to RM164.7m. But even without the impairment charges, the downstream division remained in the red as the rise in the cost of sales outpaced sales growth. Overall, the groups gross profit margin fell by 4.85% pts to 27% due to losses for the downstream division.

Figure 81: Breakdown of historical gross profit by segment

(RM m)

2,500 Plantations 2,000 Sugar Downstream

464.4428.7

1,500

1,000

17.0 1,436.9

1,779.5

500

850.0

0 2009 -500

(22.9)2010

(233.5)2011

SOURCES: CIMB, COMPANY REPORTS

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Figure 82: Breakdown of historical gross profit margins by segment

Plantations 60% Sugar 53.5% Downstream 54.2%

50%40% 30% 20.0% 20% 20.2% 37.4%

10%2.8% 2009 (10%) (12.4%) (20%) 2010 2011

(2.3%)

SOURCES: CIMB, COMPANY REPORTS

8.5 Higher administrative expenses in 2011

The groups proforma operating expenses consist of (1) administrative expenses, (2) selling and distribution expenses, and (3) other operating expenses. The administrative expenses comprises mainly management and staff costs, rent and lease payments for land and management fees paid to Felda Plantations, a subsidiary of Felda Holdings Berhad, for the management of the estates. Payment of management fees will stop on 31 Dec 2011 and FGVH will start to recognise operating expenses relating to the management of the plantations on 1 Jan 2012. Administrative expenses jumped 27% in FY11 due mainly to expenses incurred for MSM Holdings initial public offering and an increase in profit sharing payments to Felda Plantations due to the higher average sales price for FFB. Selling and distribution expenses relate to freight and other transportation, warehousing and handling costs as well as sales commissions for export sales. These costs were fairly stable in FY11.

Please fill in the values above to have them entered in your re

0 2009 2010 2011 2009 2010 2011

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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8.6 Other key items in income statement

The groups income statement also include (1) fair value changes in land lease liabilities, (2) other operating income, (3) other operating expenses, and (4) other (losses)/ gains, before arriving at the groups EBIT before associates and joint ventures. The proforma fair value changes in land lease liability of RM516m-530m in FY09-11 consisted of changes in the amount deemed effective interest and the financial liability arising from the land lease agreement, consistent with the agreements schedule of annual liability. This amount is coincidentally roughly the same as our calculation of the lease payment due to FELDA. FGVH posted a higher operating income of RM19m in FY10 compared with RM18m in FY09. This item relates to an increase in the amount due from the government for the oil palm replanting incentive scheme. Other operating income jumped to RM78.8m in 2011 due mainly to RM68.2m gains on disposal of Felda Global Ventures Middle East and Felda Global Ventures Arabia Limited in Sep 2011 to FELDA, partially offset lower replanting subsidy from the government. Felda Global Ventures Middle East is involved in real estate management while Felda Global Ventures Arabia is involved in the sale of food and beverages in the Middle East. Other operating expenses shot up 89% to RM85.8m due to a RM42.8m impairment loss for the intangible assets of Twin River Technologies and RM31.4m impairment loss on the sale of TRT-ETGO Incs inventory and soy and canola futures contracts to Bunge ETGO, a joint venture company. In FY10, the group had booked an impairment loss of RM30.4m on Twin River Technologies assets. The RM68.6m other operating expenses recorded in FY09 relate to the impairment of an apartment belonging to Felda Global Ventures Middle East Sdn Bhd. Other net gains of RM35.9m in FY11 vs. a net loss of RM66.3m in FY10 reflect a reduction in losses arising from changes in the fair value of foreign exchange forward contracts (RM47m loss in FY10 vs. RM2.4m loss in FY11). These losses were offset against a fair value gain of RM38.3m arising from changes in futures contracts for raw sugar, soybeans and canola seeds in 2011 vs. fair value losses of RM19.3m in FY10.

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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8.7 Net interest income items

Finance costs consist of interest expenses on bank borrowings, term loans and a loan from FELDA at fixed interest rates. Finance costs increased in FY10 and FY11 as the group took up more borrowings to fund a string of acquisitions including the sugar business and FHB. Finance income relates to interest income from bank borrowings, which rose in FY11 due mainly to proceeds from the sale of MSM shares following the IPO in May 2011.

SOURCES: CIMB, COMPANY REPORTS

8.8 Share of results from associates

Associates in the group are 49%-owned Felda Holdings Berhad (FHB) and 20%-owned Tradewinds (M) Berhad. The share of results from associates fell 15.8% to RM329.3m in FY11 due to the non-recurrence of the RM116.1m negative goodwill booked in FY10 when it acquired Tradewinds (M). The higher earnings from FHB helped to offset these losses in FY11. FHB posted a higher net profit in FY11, thanks to better earnings from its milling operations and rubber business which more than offset the lower margins for its refining business. In FY10, the share of results from associates improved 12% due to a maiden contribution from Tradewinds (M). However, this was offset by a 61.4% plunge in negative goodwill from RM301m in FY09 to RM116.1m. Excluding the negative goodwill item, the share of associates earnings would have soared 471% to RM275.1m, reflecting the groups full-year share of earnings from its equity interest in FHB and Tradewinds (M). This compares to only three months of contribution from FHB in 2009.

SOURCES: CIMB, COMPANY REPORTS

8.9 Share of results from jointly controlled entities

The two key jointly controlled entities in the group are (1) Felda IFFCO and (2) Trurich. This segment posted higher losses in 2011 due to larger losses for FELDA IFFCO stemming from negative refining margins. Trurich reported losses due to the low quality of FFB and adverse weather. This segment flipped from a profit of RM8.8m in FY09 to a loss of RM24.7m in FY10 because of the full-year impact of FELDA IFFCO losses compared to one month in FY09. Trurich also posted losses due to the late commissioning of its mill. The losses were partly due to the absence of negative goodwill of RM14.9m in FY09 due to its acquisition of jointly controlled entities.

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Figure 92: Historical contributions from JV

(RM m) 20 10 2009 (10) (20) (30) (40) (50) (60)(54.0)

8.8

2010

2011

(24.7)

SOURCES: CIMB, COMPANY REPORTS

8.10 Discontinued operations in 2009

In FY09, the group reported a loss of RM139.3m from the discontinued operations of Twin River Technologies Natural Ingredients, LCC. The business was sold to FELDA IFFCO in 2009 for RM75.5m. The group recorded a loss of RM18.6m from the disposal.

8.11 Net profit

The proforma effective tax rate rose from 21.5% in FY10 to 26% in FY11 due to higher impairment costs. The FY10 rate was also higher than FY09s 7.6% due to higher contributions from its sugar division. Minority interests jumped in FY11 following the listing of MSM Holdings, which diluted the groups stake in the company from 100% to 51%. Overall net profit edged up 1.1% in FY11 as higher contributions from the plantations and sugar businesses more than offset the higher tax rate and losses posted by its downstream division. The stronger net profit achieved in FY10 was due to full-year contributions from its sugar division as well as FHB and Tradewinds (M), which again more than offset losses from associates.

Please fill in the values above to have them entered in your re

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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8.12 1Q FY12 results

FGVH reported a 2% improvement in sales revenue in 1QFY12 as higher plantation and sugar sales offset lower downstream sales. Plantation revenue rose 26% yoy in 1Q12 as the group captured maiden sales of CPO starting on 1 March 2012 under the new arrangement with Felda Palms. Sugar revenue improved in line with higher export volumes and increased selling prices for refined sugar products. However, downstream revenue fell 48% yoy as the group no longer recognised revenue from the sale of soybean and canola products, following the tolling agreement with Bunge-ETGO. The group posted a 43% decline in 1Q12 pretax profit due to lower contribution from its all key divisions except associates and jointly controlled entities. Plantation earnings were hit by lower selling prices and higher cost of production. We gathered that during the quarter, the group applied more fertiliser or 40% of its requirements for the year in view of favourable weather and in line with the groups plans to raise yields after taking control over the management of the estates in Jan 2012. Stocks at the plantation unit were also higher as at end-March 2012. Sugar earnings were affected by higher raw sugar costs while downstream posted lower profits due to losses at its processing plant in Canada. Associates reported better earnings, thanks to higher contributions from Felda Holdings Berhad while earnings from jointly controlled entities improved on the back of better profit contribution from Bunge-ETGO and Trurich which more than offset losses from Felda-IFFCO. We expect the group to post higher earnings in subsequent quarters, driven by higher production and lower fertiliser costs.

SOURCES: CIMB, COMPANY REPORTS

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9. FORECASTS 9.1 Proforma earnings do not reflect new arrangements

The groups historical proforma accounts are not comparable to future earnings as they do not take into consideration the following: (1) Contractual arrangement between FGVH and Felda Palm Industries for the sale and purchase of FFB and CPO, which came into effect on 1 March 2012. Before 1 March 2012, the group did not sell any CPO, which means that the accounts reflect mainly the revenue from the sale of FFB. Starting from 1 March 2012, the group will recognise the sales and cost of sales of CPO in its accounts and will no longer recognise FFB sales. (2) Historical earnings reflect the estate management arrangements that existed prior to the land lease arrangement, where a management fee was paid to Felda Plantations, a subsidiary of FHB. Future earnings will not reflect the payment of management fees by the estates but will include the cost of expenses relating to the management of the estates. (3) The groups historical accounts include the sales of soybean and canola as well as the cost of sales from the purchase of soybeans and canola until 9 December 2011, when the tolling agreement with Bunge ETGO took effect. Following this, the group no longer recognises revenue and cost of sales for soybean and canola seeds in its financial accounts. In view of the above, future sales from the plantation division are expected to be higher as they will incorporate sales of CPO which fetches higher selling prices than FFB. Furthermore, it will include sales of FHB-processed CPO from FELDA settlers and third parties estates to affiliate entities or third parties.

3,400 5,213 3,300 5,128 3,200 3,100

5,200 5,100 5,000

Please fill in the values above to have them entered in your re

241 215 3,056

2,9004,800 4,700 4,600 4,500 2009 2010 2011

4,744

2,800 2,700

2,8712,774

2,6002,500 2009

2010

2011

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

9.2 Lower plantation earnings in FY12

We forecast the group to post a 39% jump in FY12 revenue, driven by better average selling prices achieved for its palm products and new contribution from the sale of CPO purchased from FHBs subsidiary under the new contractual agreement starting 1 March 2012. FY12 plantation revenue is expected to include 10 months of contribution from the sale of CPO by the group following a new contractual arrangement with Felda Palm Industries. We forecast that the group will sell 2.3m tonnes of CPO at an average price of RM3,130 per tonne in FY12.

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We estimate that plantation cost of sales will rise by 240% in FY12 due to higher estate costs arising from higher fertiliser and labour costs and the inclusion of the cost of buying CPO products from Felda Palm Industries. Overall, we estimate plantation gross profit to decline by 10% in FY12, due to higher estates costs and weaker production. For 2013-14, we project plantation gross profit to grow by 5-13% due to higher selling prices and production. Our gross profit estimates for the plantation division exclude the actual lease payment due to FELDA which we have incorporated under the fair value changes in the lease payment item in the income statement.

9.3 Slight decline in sugar contributions

We project FGVHs sugar revenue to increase 15% in FY12, fuelled by higher sales volume and government subsidies. We estimate a 5% rise in sales volume coming from stronger domestic and export sales. The total sugar subsidy from the government is also expected to increase in line with the 34 sen/kg increase in sugar subsidy to 54 sen/kg effective 1 Jan 2012. The sugar division is expected to post a 5% decline in gross profit in FY12 as the rise in raw sugar costs more than offset the lower operating costs from its loss-making sugar estates. We estimate that the group will enjoy cost savings of RM15m p.a. following the conversion of its loss-making sugar estates in Perlis to rubber estates during the year. The groups cost of raw sugar is expected to rise this year as the previous long-term contracts for raw sugar, which covers 70% of the domestic sugar requirements, at 17.5 US cts/lb expired on 31 December 2011. The government, though the refiners, has since locked in new long-term contracts for sugar at 26 US cts/lb. This is 49% higher than the price for raw sugar under the previous years contract.

9.4 Lower losses from downstream business segment

We expect the groups downstream division to post lower losses in 2012 due to the absence of impairment charges on assets and goodwill totalling RM207.5m in FY11 and its venture into a tolling agreement to turn around its downstream operations in Canada. For 2013-14, we project this division to post a profit of RM5-11m. We are projecting a sharp drop in sales and cost of sales from the downstream division as the group will no longer recognise any sales of processed products and cost of raw materials for its soybean and canola facilities following the tolling agreement with Bunge ETGO. Instead, it will recognise tolling revenue based on certain agreed computations with TRT-ETGO. As such, the revenue and earnings for the downstream business will mainly reflect sales and earnings contribution from its oleochemical division. To recap, 100%-owned TRT-ETGO entered into a tolling agreement with 49%-owned Bunge ETGO on 9 December 2011. Bunge ETGO is a joint venture between Bunge Limited and the TRT-ETGO. Under the joint venture agreement, TRT-ETGO agreed to crush canola seeds and soybeans and refine edible oils for the partnership at its canola and soybean crushing plant and edible oils refinery. The partnership (Bunge ETGO) will take over the supply of canola seeds and soybeans and sales of processed products from the facilities. TRT-ETGO will perform certain upgrades at its facility to achieve the agreed benchmarks. Until these benchmarks are achieved, Bunge ETGO will pay it a fixed and variable fee for each tonne of crushed materials and 80% of certain applicable transportation costs.

9.5 Other assumptions in our earnings forecasts

We have incorporated our calculation of the actual lease payments to FELDA based on a fixed amount and a percentage of operating profit under the changes56

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in fair value of land lease liability for FY13-14. In our estimate, we have assumed that the profit sharing element in the lease agreement is 15% of the plantations operating profit. Our projection of this payment for FY13-14 is fairly stable at RM512m-543m, in line with the groups plantation earnings. Other operating income is expected to decline to RM10m in FY12-14 due the absence of gains from the disposal of subsidiaries.

9.6 Net profit to improve 11% in 2012

Overall, we estimate that the group will post a 11% jump in FY12 net profit, driven lower losses from its downstream division. In our projections, we have estimated that it will register an effective tax rate of around 20% and higher minority interests because of a full-year impact of the reduction in its stake in MSM Holdings from 100% to 51% after the IPO exercise in May 2011. We project an 19% and 8% rise in net profit in FY13 and FY14 net profit as the rise in selling prices for palm products and efficiency gain will more than offset the higher cost of production.

SOURCES: CIMB, COMPANY REPORTS

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10. VALUATION AND RECOMMENDATION 10.1 FGVH offers high earnings leverage to CPO pricesFGVH is the fourth largest plantation stock by market capitalisation in the Malaysian plantation sector space. The unique feature of this company is that it leases the land from FELDA. It is also the largest CPO producer in Malaysia and has a captive market for milling fruits, i.e. the Felda settlers, through its associate Felda Holdings Berhad. The groups advantage lies in its close link with FELDA, which may aid the groups M&A pursuits. FGVH recently raised RM4.5bn from the IPO issue and plans to utilise the proceeds to acquire upstream and downstream assets to boost future earnings. Among the big-cap planters in Malaysia, FGVH offers one of the highest earnings leverage to CPO prices as it derives a higher percentage or 80% of its earnings from the plantation business compared to its peers, where only 60-70% of earnings come from the upstream plantation segment.

10.2 Using SOP to value the group

We value the group using sum-of-the-parts (SOP) calculation as it allows us to apply appropriate valuation methods to its various business segments. FGVHs 100% stake in the land leased from FELDA for up to 99 years is the most valuable asset as it allows the group to ride the bullish long-term CPO price trend. We estimate that the strong cash flows from its existing estates will be more than sufficient to fund the groups replanting programme. We apply a 14x P/E, similar to what we accorded to other big-cap Malaysian planters, to value the groups estates and arrive at a value of RM11.8bn. We value the groups 14,385ha landbank in Indonesia held through PT Citra Niaga at an EV/ha range of US$1,000, similar to recent transacted prices for unplanted landbank that we gathered from the market. For the downstream business, we assign a P/BV of 1x for its North American business operations and deduce a total value of RM562m for the assets. We choose to value the downstream assets on a P/BV basis in view of the volatile earnings trend. Furthermore, this division posted losses over the past two years due partly to asset impairment charges. We value the groups 51% stake in MSM Holdings at our target price of RM5.05, which is based on a forward P/E of 13x. We apply forward P/Es of 12x to arrive at the valuation range for the groups 49% stake in Felda Holdings Berhad. We value the company at a discount to our target market P/E of 13.3x due to concerns over potential losses for the groups refining division given the unfavourable export tax structure in Malaysia. We also value its 20% stake in Tradewinds (M) at its market value. For its Felda IFFCO JV, we apply the last transacted price of RM145m in 2009 as the business is currently loss-making. As for the groups 50% stake in Trurich Resources, we value the estates at our assumed price range for planted and unplanted oil palm estates in Indonesia. We strip out the groups net debt from the total value of the groups assets to arrive at an SOP value of RM5.61, which we discount by 10% to arrive at our target price of RM5.05. There is upside to our target price if the group snaps up earnings-enhancing assets at attractive prices.

10.3 Borrowings and capex

We project that the group may incur RM250m-350m capex per annum over the next three years for capacity expansion and efficiency improvement in its plants. As at 31 December 2011, the group had RM1,185m net debt which works out to be a net gearing ratio of 80%. The groups borrowings relate mostly to acquisitions over the past few years for its new business activities. Its outstanding borrowings are primarily denominated in ringgit while its overseas borrowings relate mostly to loans taken up by its subsidiaries. Also, the majority of the groups debt relates to loans and advances from its parent, FELDA totalling RM1,835m. These loans and advances are due in instalments59

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between now and 2020 and carry a fixed effective interest rate of 4.805% per annum. Post IPO exercise, the group is in net cash position of RM2.7bn.

SOURCES: CIMB, COMPANY REPORTS

Figure 103: Utilisation of proceeds

Details of use of proceeds Selective Acquisition of oil and fats, manufacturing and logistic businesses Construction or acquisition of mills and refineries Loan repayment for overseas operation Capital expenditure for increases in efficiency, as well as extension of capabilities Working capital requirements, general corporate purposes Estimated listing expenses Total gross proceeds Estimated timeframe for utilisation upon listing within 3 years within 3 years within 3 years within 6 months within 2 years within 6 months within 6 months RM '000 2,190,000 840,000 780,000 260,000 100,000 129,000 160,000 4,459,000 % 49.1 18.9 17.5 5.8 2.2 2.9 3.6 100.0

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August 6, 2012

Breakdown of land ownership in Malaysia

Malaysias planted oil palm area totaled 5m ha in 2011, according to Malaysian Palm Oil Board (MPOB). We estimate that FGVH is the largest palm oil operator in Malaysia as it operates 6.5% of total planted oil palm area in the country. Sime Darby is a close second, controlling 6.3% of the total oil palm estates in Malaysia based on its 314,035ha of planted estates as at 30 June 2011. IOI Corp ranked third among the listed players under our coverage with 3% share, followed by KL Kepong. Most of the big-cap plantation companies are listed in Malaysia or Singapore.

SOURCES: CIMB, COMPANY REPORTS

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Comparison of planted oil palm areas

Sime Darby has the largest planted oil palm area among the listed players in the region. Golden Agri is the largest palm oil operator in Indonesia with 361,060ha of planted nucleus estates. We estimate that FGVH is the third largest regional palm oil operator in the world and the largest operator in Malaysia. Compared to its peers, FGVH has not been as aggressive in expanding its planted estates locally or in Indonesia over the past 10-20 years.

SOURCES: CIMB, COMPANY REPORTS

Comparing mature areas

The top three owners of mature oil palm estates in the region are broadly the same as the top three in terms of planted area. Sime is the largest, followed by Golden Agri and FGVH. 60% of Simes planted estates are located in Malaysia and the remaining 40% in Indonesia. All of Golden Agris estates are in Indonesia while FGVHs planted estates (excluding JV-owned estates) are located in Malaysia.

SOURCES: CIMB, COMPANY REPORTS

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Comparing average FFB yields in 2011

FGVH is ranked 11th among the listed regional planters in terms of average FFB yield achieved. Its FFB yield is lower than most of its big-cap peers in Malaysia as a higher proportion of its planted oil palm estates are over 20 years old. We estimate the average age of its oil palm estates to be 17 years, which is the highest among the regional planters we track. On top of that, 53% of its estates are above 21 years, which is when theoretical FFB yields start trending lower.Figure 110: FFB yield comparison among regional planters in 2011(MT/ha)

Figure 112: FFB production of regional planters in 2011

SOURCES: CIMB, COMPANY REPORTS

CPO productionFGVH, through its associate FHB, is the largest CPO producer in the world and Malaysia. This is because the groups milling operations under 49% associate FHB have a secure source of FFB from settlers and the estates leased from FELDA. On top of that, it purchases 33% of its FFB from third parties to enhance the utilisation rate of its mills.

SOURCES: CIMB, COMPANY REPORTS

OER achieved by the groups mills is the second lowest among the regional planters. This could be due to their inability to control the quality of FFB crops that are processed by the mills as 33.4% of the FFB crops processed in 2011 came from third-party estates and another 33% of FFBs processed are sourced from settlers.

Figure 115: Oil extraction rate (2011)

25%

24%

23%

22%

21%

20%

19%

18% BAL**FYE Sept 2011

FR

GGR

LSIP

AALI

IFAR/ SIMP

SIME (IND)

KLK**

SIME (MAL)

HAPL

IOI*

KAGR

WIL

FGVH

GENP

SOURCES: CIMB, COMPANY REPORTS

In 2011, FGVHs estates produced the second lowest EBIT per ha (before lease payment to FELDA). We believe that this is largely because the groups estates achieved lower FFB yields than its peers. Secondly, the groups estates and milling operations are run by two separate entities. As such, the profitability of the estates does not capture the added value of processing FFB into CPO as well as profit earned from processing third parties fruits at the mills.

SOURCES: CIMB, COMPANY REPORTS

We estimate that Sime has the largest landbank among the listed players due to its venture into Liberia. Wilmars landbank is mostly in Indonesia. FGVH does not have significant unplanted landbank and is keen to explore acquisitions.

TRT Holdings ETGO Inc (Soy and canola)

Felda Rubber Industries

TRT ETGO Inc

49% Bunge ETGO G.P. Inc

Bunge ETCO LP

72.7%

Felda Johore Bulkers

51%Felda Transport

Other businesses

SOURCES: CIMB, COMPANY REPORTS

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APPENDIX 3: BOARD OF DIRECTORS

Figure 119: Director profile

YB Tan Sri Haji Mohd Isa Dato Haji Abdul Samad Non-Independent Non-Executive Chairman Age: 62 YB Tan Sri Haji Mohd Isa Dato Haji Abdul Samad graduated with a Bachelor of Arts from Universiti Malaya. He began his career in politics in 1974 as the Deputy President of the United Malays National Organisation (Umno) Youth of Teluk Kemang. He has held the several key positions in Umno, including the positions of Umno Youth chief of Teluk Kemang, Umno chief of Teluk Kemang (a position held until now), State Assemblyman of Linggi and Negeri Sembilan State Executive Committee. He also held the position of Chief Minister of Negeri Sembilan from 1982 to 2004. He is currently Chairman of FELDA and sit on various boards within the group. Dato Sabri Ahmad graduated with a Bachelor of Science (Agriculture) from Universiti Malaya and a Master of Science (Agricultural Economics) from the University of London in 1972. He further pursued two Advanced Diplomas from the University of Rhode Island, USA and Oxford University. He started his career in 1970 with the Ministry of Agriculture and later with the Fisheries Development Authority as Deputy Director General. He joined several corporations and was appointed Golden Hope Plantation Bhd's CEO and Director in 2004. He was Chairman of Malaysian Palm Oil Board from 2007 to 2010. He is the Group President and Director and Managing Director of FHB. Dr. Mohd Emir Mavani Abdullah graduated with a chemistry degree from Universiti Kebangsaan Malaysia in 1987 and obtained his Masters of Engineering Management from Warwick University, UK in 2000. He further obtained his Doctorate in Government Reforms from Warnborough University, United Kingdom in 2008 and completed various executive education programmes with Harvard in 2002 and Yale in 2003. He has served in foreign government departments and has contributed to several projects undertaken by the OECD and United Nations. Currently, he is the Director of Oil, Gas & Energy and Financial Services in the Performance Management and Delivery Unit (Pemandu), and also the CEO of Malaysia Petroleum Resource Corporation, the Prime Minister's Department. Datuk Dr. Omar Salim graduated with a Bachelor in Arts from Universiti Malaya in 1981. He further obtained his Master of Business Administration from the University of Birmingham, United Kingdom in 1995 and a Doctorate in Business Administration from Universiti Kebangsaan Malaysia in 2004. He started his career in 1983 with the Public Services Commission as Assistant Secretary. He then moved to Telekom Malaysia Berhad as Assistant Secretary after serving several positions in the government. He was a Director of Malaysia Administrative Modernisation and Management Planning Unit (MAMPU) from 1996 until 1999. From 2000 to 2004, he was Deputy Secretary in the Finance Ministry. Subsequently, he served as the Director in Internal Audit and Inspection at Malaysia Maritime Enforcement Agency. In 2008, he was appointed as Head of Unit in Unit Kawal Selia FELDA of the Prime Ministers Department, a position which he holds until now. Dato Yahaya Abd Jabar graduated with a Bachelor of Arts (Honours) in International Relations from Universiti Malaya in 1975. He began his career in the Ministry of Foreign Affairs in 1975 with the Administrative and Diplomatic Service of Malaysia. While abroad, he served in a number of Malaysian Missions including in Saudi Arabia, Indonesia, Italy and Thailand and became an ambassador in 1999. He served as the Ambassador to Uzbekistan from 1999 to 2003 and High Commissioner to South Africa, Mozambique, Botswana, Lesotho, Swaziland and Madagascar from 2004 to 2008. From 2003 to 2004, he was the Chief Protocol at the Ministry of Foreign Affairs where he was involved with the OIC Summit of Heads of States and Government hosted by Malaysia in 2003. His last post was as Ambassador to the United Arab Emirates from 2008 to 2011. Dato Shahril Ridza Ridzuan graduated with a Bachelor of Civil Law from Oxford University, in 1992 and Master of Arts from Cambridge University in 1993 and has been called to the Malaysian Bar and the Bar of England and Wales. He began his career as a legal assistant at Zain & Co. from 1994 to 1996. From 1997 to 2001, he served in various organisations which include Trenergy (M) Berhad/Turnaround Managers Inc (M) Sdn Bhd, Pengurusan Danaharta Nasional Berhad and SSR Associates Sdn Bhd. He was the Group Managing Director of Malaysian Resources Corporation Berhad from 2003 to 2009 and has been the Deputy CEO (Investment) of Employees Provident Fund Board since 1 December 2009. He also sits on the boards of Media Prima Berhad, Pengurusan Danaharta Nasional Berhad, Malaysian Resources Corporation Berhad and Malaysian Building Society Berhad. Dato Abdul Rahman Ahmad graduated with a Master of Arts in Economics from Cambridge University in 1992 and is a member of the Institute of Chartered Accountants in England and Wales. He began his career in 1992 as an assistant manager at Arthur Andersen, London. From 1996 to 2001, he has served several organisations which include Trenergy (M) Berhad/Turnaround Managers Inc (M) Sdn Bhd, Pengurusan Danaharta Nasional Berhad, and SSR Associates Sdn Bhd. He also held the posts of CEO of Malaysian Resources Corporation Berhad, as well as an Executive Director of Sistem Televisyen Malaysia Berhad in 2001-03. He was Group Managing Director and CEO of Media Prima Berhad from 2003 to 2009. He has been a Director and CEO of Ekuiti Nasional Berhad since 2009, a Director of Malaysian Resources Corporation Berhad since 2001 and a Director of Tanjung Offshore Berhad since 2010.

Datuk Dr. Omar Salim Non-Independent Non-Executive Director Age: 54

Dato Yahaya Abd Jabar Independent Non-Executive Director Age: 59

Dato Shahril Ridza Ridzuan Independent Non-Executive Director Age: 41

Dato Abdul Rahman Ahmad Independent Non-Executive Director Age: 42

SOURCES: CIMB, COMPANY REPORTS

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APPENDIX 4: KEY MANAGEMENT TEAM

Figure 120: Management profile

Dato Sabri Ahmad Group President and CEO Age: 64 Dato Sabri Ahmad graduated with a Bachelor of Science (Agriculture) from Universiti Malaya and a Master of Science (Agricultural Economics) from the University of London in 1972. He further pursued two Advanced Diplomas from the University of Rhode Island, USA and Oxford University. He started his career in 1970 with the Ministry of Agriculture and later with the Fisheries Development Authority as Deputy Director General. He joined several corporations and was appointed Golden Hope Plantation Bhd's CEO and Director in 2004. He was Chairman of Malaysian Palm Oil Board from 2007 to 2010. He is the Group President and Director and Managing Director of FHB. Ramli Putih graduated with a Diploma of Agriculture and a Bachelor of Science from Universiti Putra Malaysia in 1974 and 1988, respectively. He started his career as a Manager for several of FELDAs estates. In the 1988, he was appointed as Senior General Manager of F Rubber Industries. In 2002, he was promoted as the CEO of MCM. He held this position for two years before moving to Felda Trading Sdn Bhd also as a CEO in 2004. In 2006, he was appointed as the Deputy Managing Director of FHB. In 2010, he joined FGVH as Executive Vice President, Head of Multicrop. Dr. Suzana Idayu Wati Osman obtained her BA (Hons) in Business Studies from the University of Huddersfield, England in 1992, and MBA (Finance) and Doctorate in Finance from Universiti Putra Malaysia in 2004 and 2011, respectively. She has also attended the Advanced Management Program at Harvard Business School, Harvard University. She started as an Audit and Accounting Assistant for the London Borough of Barking and Dagenham, United Kingdom. In 1993, she worked as Sales Administration Officer with Metroplex Berhad and then as a Finance and Administration Manager in a manufacturing company. She joined Bank of Tokyo-Mitsubishi in 1994 and Sime Bank in 1998. She joined FELDA in 1998 and progressed to the position of Head of Investment. In 2008, she became Deputy Group CEO. After the reorganisation exercises, she was promoted to the post of Executive Vice President and assumed her current position. Abdul Halim Ahmad obtained his Diploma in Mechanical Engineering from Universiti Teknologi Malaysia in 1977. He has been a Certified Steam Engineer since 1986 and has also attended various courses at the Asian Institute of Management, Manila, Philippines and Harvard University. He started his career with FELDA in 1977 as an Assistant Manager and rose through the ranks to become Executive Director of F Vegetable and later Senior Executive Director of F Palm Industries in 2007. In 2010, he joined the company as Senior Vice President holding the position of Head of Oleochemicals. He is also involved in various committees including the Main Research and Development Committee of Malaysian Palm Oil Association. He is the former Chairman of Technical Committee of Malaysian Palm Oil Association (MPOA) and currently a member of Program Advisory Counsel to MPOB. Chua Say Sin graduated with a Bachelor in Electrical Engineering from the University of New South Wales, Australia and a Master of Engineering Science from the University of Sydney, Australia. He is currently a registered Professional Engineer (PE). He is also a member of the Institution of Engineer (MIEM). He started his career in the container port of the Port of Singapore Authority, Singapore in 1973. He joined MSM in 1974 and was appointed the Factory Manager in 1988 before he was seconded to another subsidiary of PBB group, ChemQuest Sdn Bhd, as Managing Director. Since 1999, he has been the Managing Director of MSM. He has over 30 years of experience in the sugar industry. He is currently the CEO of MSM Holdings. Palaniappan Swaminathan obtained his Bachelor of Science (Honours) and Master of Science both from Universiti Malaya in 1978 and 1982, respectively. In 1993, he obtained his ACCA Certified Diploma in Accounting and Finance. He also has a certificate in plant breeding from the International Agricultural Centre, Wageningen, Netherlands. He joined F Agricultural in 1978 as a Research Officer. He was appointed as the General Manager of Research and Development in 2004 and CEO of F Agricultural in 2006. He was also a member of the Advisory Committee for Biotechnology and Molecular Science, Universiti Putra Malaysia and a member of the board of advisors for the proposed Kulliyyah of Agricultural Science and National Resources, International Islamic University Malaysia. In 2012, he was appointed Senior Vice President, Head of Research and Development.

Ramli Putih Head of Management Advisory Age: 58

Dr. Suzana Idayu Wati Osman Chief Strategy Officer Age: 43

Abdul Halim Ahmad Head of Manufacturing, Logistics and Others Age: 56

Chua Say Sin Head of Sugar Business Age: 65

Palaniappan Swaminathan Head of Research and Development Age: 57

SOURCES: CIMB, COMPANY REPORTS

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Figure 121: Management profile (continued)

Martin Rushworth Head of Downstream Business Age: 59 Martin Rushworth obtained his Bachelor of Engineering Science from Durham University, England in 1974. He also received his Manufacturing Technology Diploma from Colchester Technical College and attended Business Education Programmes at London Business School and Bradford Business School, United Kingdom in 1977. He started his career in 1974 as a Management Trainee with Unilever UK. During his tenure with Unilever, he served at different regions which included places such as Zimbabwe, Congo, Malawi and Cote dIvoire. He was Chairman and Managing Director of Unilevers oil palm business in Malaysia from 2001 to 2004. In 2004, he set up his own palm oil consulting business, Clearwind Sdn Bhd, where he was the Chairman and Managing Director. Rushworth sold his business in 2011. He joined FGVH in the same year as Senior Vice President, Head of Oil and Fats. Fairuz Ismail has a Diploma in Planting and Industry Management from the Universiti Technologi MARA in 1984. He is an Exco member of Malaysian Palm Oil Association (MPOA) and also a member of professional bodies namely Asian Institute of Management (AIM) and Incorporated Society of Planters (ISP). He started his career in 1985 at Golden Hope Plantations Berhad and where he served within the group for 22 years. After the merger between Golden Hope Plantations Berhad, Kumpulan Guthrie Berhad and Sime Darby Berhad in 2007, he was appointed as Region Head of Estates Operations in East Malaysia in the new entity, Sime Darby Plantations Sdn Bhd. He then continued his service as Head of New Projects in Liberia, Sabah and Sarawak. In 2010, he joined the Company as Senior Vice President, Head of Transformation and Management Office. Ahmad Tifli Dato Haji Mohd Talha is a member of the Institute of Chartered Accountants in England and Wales (ICAEW) in 1989. He started his career in 1985 in Hobson Phillips & Sharpe Chartered Accountants, Nottingham, England. In 1991, he joined Price Waterhouse Kuala Lumpur as an audit senior. Prior to joining FGVH, he served multiple positions in corporations such as Accountant in Perbadanan Usahawan Nasional Berhad, Financial Controller in Boustead Trading Sdn Bhd, Group Financial Controller and Chief Operating Officer of Kumpulan Mofaz Sdn Bhd, Deputy General Manager in Strategy and Head of International Sales & Services Division of Proton Berhad, CEO of a subsidiary of PROTON Berhad, and Chief Operating Officer of Motorsports Knights (M)Sdn Bhd before he moved to Scomi Group as a Head of Scomi Coach in 2008. In 2011, he joined the Company as Senior Vice President and assumed his current position.

Fairuz Ismail Head of Global Plantations Age: 49

Ahmad Tifli Dato Hj Mohd Talha Chief Financial Officer Age: 46

Norzaimah Maarof Chief Counsel Age: 42

Norzaimah Maarof graduated with a Bachelor of Laws from the University of Southampton and was called to the Bar of England and Wales in 1993. She started her career as a Legal Researcher in 1990 with Messrs. SK Tay & Co. From the period of 1994 until 2000, she was an Assistant Manager at General Lumber Fabricators & Builders Sdn Bhd. She then moved to Phillips Malaysia Sdn Bhd as Senior Legal Counsel from 2000 to 2003. She joined Pfizer Malaysia Sdn Bhd in 2003 where she was first appointed as Legal Director for Malaysia, Singapore and Brunei and then seconded to Pfizer Headquarters in New York in 2006. She was later appointed as Legal Director for Asia Research and Development where she provided core research and development legal support and counsel for Pfizer Global research and development activities in Asia and support and counsel for international clinical trials. In 2009, she joined the company as Vice President and assumed her current position.

SOURCES: CIMB, COMPANY REPORTS

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APPENDIX 5: FHBS PROCESSING FACILITIES

FHB sources FFB from (1) FELDA-leased estates, (2) FELDA settlers, (3) third parties, and (4) F Agricultural. Its palm oil mills process the FFB into crude palm oil (CPO) and PK. The groups operates 70 palm oil mills in Malaysia, 58 of which are in Peninsular Malaysia and 12 are in Sabah and Sarawak. The groups annual milling capacity of approximately 20.4m tonnes of FFB means that the group operates around 20.5% of the total milling capacity in Malaysia. In 2011, FHBs CPO production of 3.3m tonnes accounted for 17.4% of Malaysias CPO production.

SOURCES: CIMB, COMPANY REPORTS

The group owns and operates four PK crushing plants, three of which are located in Peninsular Malaysia and one in Sabah. FHBs PK crushing plants have an aggregate annual crushing capacity of 1.03m tonnes, which represents 14.5% of Malaysian PK crushing capacity in 2010.

*FHB's annual processing capacity is based on the optimum processing capacity of PK crushing plants operating 12 months in a calendar year for 29.6 days a month and 24 hours a day. **Calculated by dividing processed volume per annum by maximum processing capacity per annum.

SOURCES: CIMB, COMPANY REPORTS

The group owns 10 biogas plants that are co-located with certain of its palm oil mills. These facilities capture methane gas from palm oil mill operations. In addition, it operates its own power plant and three mini-gasifiers, all of which convert empty fruit bunches (EFB) into fuel for palm oil mills. It also uses biomass to produce fertiliser.

Mill Mill Mill Mill

SOURCES: CIMB, COMPANY REPORTS

FHB operates five palm oil refineries with a total capacity of approximately 2.5m tonnes, representing 11% of Malaysian palm oil refining capacity. In 2011, FHBs palm oil refineries had capacity utilisation rates of approximately 62% for refining, 71% for fractionation and 74% for packed product production.

*Annual processing capacity is based on the optimum processing capacity of palm oil refineries operating 336 days per year and 24 hours a day.

SOURCES: CIMB, COMPANY REPORTS

FHB has eight processing facilities located throughout Peninsular Malaysia, two in Thailand and one in Indonesia. Its two processing plants in Thailand are operated by a joint venture company, Feltex, which it established in 1994 with Teck Bee Hang Company, one of the largest rubber processors of natural rubber in Thailand that was subsequently acquired by GMG Global Ltd. FHB has 51% stake in the plant. PT Felda Indo Rubber, its 90%-owned subsidiary, produces SIR 10 and SIR 20 or block rubber. The group sources two types of rubber, field latex and cup lumps from estates on FELDA-leased land, FELDA settlers and third parties.

Figure 131: Rubber production facilities

Malaysia Thailand Indonesia

*Annual processing capacity is based on what FHB believes to be the optimum processing capacity based on 25 days a month and 16 hours a day of operations. **Calculated by dividing processed volume per annum by maximum processing capacity per annum.

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

The group grinds cocoa beans in its processing facility in Seremban, which has a grinding capacity of 30,000 tonnes of cocoa beans per annum. FHBs primary cocoa products are (1) cocoa powder, (2) cocoa butter, and (3) cocoa liquor. The group sold to Nestle Malaysia 64% of its cocoa products in 2009, 54% in 2010 and 45% in 2011 under short-term contracts. The group obtains a substantial portion of its beans from Indonesia. FHB operates three fertiliser manufacturing facilities in Malaysia. Its Johor facility has annual production capacity of 300,000 tonnes. It also has two fertiliser mixing plants. The one in Kuantan has an annual production capacity of 250,000 tonnes while the other in Lahad Datu boasts a capacity of 80,000 tonnes. It manufactures urea and ammonium sulphate based compound fertiliser.

Figure 133: Fertiliser production facilities

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

The group also owns seven bulking installations in Malaysia which have 486 storage tanks with capacity of 752,250 tonnes. These bulking installations provide annual storage of approximately 8m tonnes, 40% of which for CPO, 50% for processed palm oil and 10% for oleochemicals, biodiesel and others. The group also provides land transportation services. It operates a fleet of 251 palm oil tanker vehicles.

Figure 169: Port and conveyor

Figure 170: Raw sugar warehouse

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Figure 171: Vacuum pan

Figure 172: Vertical continuous crystalliser MSM only

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

Figure 173: Sugar crystallising

Figure 174: Railway in MSM facility

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

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Recommendation Framework #1 *

StockOUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

SectorOVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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August 6, 2012

Recommendation Framework #2 **

StockOUTPERFORM: Expected positive total returns of 10% or more over the next 12 months. NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months. UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months. TRADING BUY: Expected positive total returns of 10% or more over the next 3 months. TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

SectorOVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.